Key View
- The Reserve Bank of India left interest rates unchanged at its August 2024 meeting, in line with broad consensus expectations. That said, we still forecast 50bps in interest rate cuts from the RBI in FY2024/25, with the first cut coming in Q4 2024.
- It is unclear whether the RBI will start its easing cycle in October or December, as October might be too early considering that inflation edged up slightly in June to 5.1% y-o-y, and the Bank remains very focused on its goal of lowering inflation given that growth remains robust.
- Given that food inflation remains elevated, we see slight upside risks to our forecast for cuts to 6.00% this year, but see balanced risks to our forecast for 50bps of cuts to 5.50% in FY2025/26.
The Reserve Bank of India (RBI) held its policy repo rate and the standing deposit facility rate at 6.50% and 6.25% respectively for the ninth month at their August meeting. We still expect the Bank to cut the policy repo rate by 50bps to 6.00% by the end of FY2024/25 (April-March). Similar to the last meeting, the Monetary Policy Committee voted 4-2 to keep policy unchanged and said it remains ‘focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth‘. As was the case in their in June meeting, Governor Shaktikanta Das mentioned food-related risks to price stability given that they account for about 46% of the inflation basket.
The Reserve Bank of India (RBI) recently opted to maintain its current interest rates, but signals indicate a potential cut in the last quarter of 2024. This decision aligns with both global economic trends and domestic inflation targets. Although inflation has shown signs of easing, the RBI remains cautious, aiming to balance growth and price stability as it navigates through complex economic conditions.
The decision to hold rates steady reflects the RBI’s prudent approach, given the persistent uncertainties in global markets and economic repercussions of geopolitical tensions. By avoiding hasty changes, the RBI ensures the financial ecosystem remains stable, averting any shocks that could derail India’s economic recovery momentum post-pandemic. This careful stance keeps the RBI agile, ready to respond dynamically to evolving economic indicators.
Looking forward, optimism surrounds the forecasted rate cut in Q4 2024. Analysts believe this move will spur economic growth by making borrowing more affordable, encouraging investments and consumption. The anticipation of a rate cut aligns with the RBI’s medium-term objectives of fostering sustainable economic development, while adhering to fiscal discipline. As the central bank continues its vigilant monitoring, stakeholders remain positively hopeful about India’s economic trajectory in the coming years.
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